Capital Mobility Versus Sterilization Policy: A Time Series Approach for Austria

Posted: 26 Jun 2011

See all articles by Heinz Handler

Heinz Handler

Austrian Institute of Economic Research (WIFO); Vienna University of Technology - Institute of Statistics and Mathematical Methods in Economics, Research Group Economics (ECON); Policy Crossover Center Vienna-Brussels

Date Written: 1985

Abstract

In this paper the causal relationship between the domestic and the foreign components of the Austrian monetary base has been investigated. The two components seem closely and negatively related which induced the formulation of two hypotheses: the "capital mobility hypothesis" implying that the direction of causation predominantly runs from the domestic to the foreign component; and the "sterilization hypothesis" according to which changes in the domestic component are caused by exogenous changes in the foreign component. These two hypotheses were related, respectively, to the monetarist and portfolio approaches of balance of payments theory. Granger-causality tests were applied to monthly as well as to weekly data. The empirical results indicate that the sterilization hypothesis dominates over the capital mobility hypothesis. A possible explanation is that certain government agencies were permitted to import capital from abroad according to their specific requirements regardless of monetary policy considerations. Therefore, the central bank has at times sterilized these capital imports before equilibrating market forces would work their way through the economy.

Keywords: Capital mobility, sterlization, Granger causality, Austria

JEL Classification: E52, F30

Suggested Citation

Handler, Heinz J., Capital Mobility Versus Sterilization Policy: A Time Series Approach for Austria (1985). Emprica, Journal of Applied Economics and Economic Policy, Vol. 12, No. 2, 1985, Available at SSRN: https://ssrn.com/abstract=1870948

Heinz J. Handler (Contact Author)

Austrian Institute of Economic Research (WIFO) ( email )

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+43 1 79826010 (Phone)

HOME PAGE: http://www.wifo.ac.at

Vienna University of Technology - Institute of Statistics and Mathematical Methods in Economics, Research Group Economics (ECON) ( email )

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Vienna, 1040
Austria

HOME PAGE: http://www.econ.tuwien.ac.at

Policy Crossover Center Vienna-Brussels ( email )

Vienna
Austria

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